ISLAMABAD: The Federal Board of Revenue (FBR) has expectations that low growth in provincial tax revenues will settle down after witnessing an initial spurt following the devolution of sales tax collection.
“The FBR was concerned over the low growth in provincial tax collection after rising substantially in the previous year, the pace of tax collection weakened in third quarter of the current fiscal year; July-March 2014 because individual provinces, tax receipts by Sindh and the Punjab posted a sharp slowdown during this period,” a well placed official source at FBR told this scribe here on Monday.
However, the source said that collections by KPK almost doubled in Jul-Mar FY14, due to the establishment of KPK Revenue Authority in August 2013. “FBR believes the improvement in tax administration and widening the tax base, can lead to a significant increase in provincial tax receipts,” the source added saying that an analytical view of details of taxable services under Second Schedule of the Sindh Sales Tax on services Act, 2011; First & Second Schedule of the Punjab Sales Tax Act on services Act 2012 in Sindh and the Punjab provided some important insights in this regard.
The source said that there was 16% General Sales Tax (GST) on services in Punjab and Sindh while it was 17 % in the rest of the country as well as the base of sales tax on services was wider in Sindh (150 services) compared to the Punjab (105 services). Moreover the source said that scope of telecommunication services was much broader in Sindh, with 65 services in the tax net, as compared to 29 in the Punjab and services provided by the financial sector, hotels, restaurants, advertising agencies, professional and consultants, and couriers, were almost fully covered in both these provinces.
“The growth in cumulative provincial tax revenues fell from 90.1 percent in Jul-Mar FY13 to 24.3 percent in Jul-Mar FY14,” the source added, saying that tax collection by Sindh and Punjab had 91.9% share in overall provincial tax collection in Jul-Mar FY14. “The tax net can be enhanced by expanding the coverage to untaxed services,” the source suggested that there was a significant scope for widening the tax base on services for GST collection at the provincial level. The source said that under the 7th National Finance Commission (NFC) award, 57.5% of total tax revenue were transferable provinces and it had been complemented by the devolution of spending responsibilities, the substantial increase in the provincial share of federal revenues, in the absence of binding fiscal targets for provincial revenue generation, could discourage provinces to increase their own revenue generation efforts. “This anomaly should be taken into account, while finalizing the next NFC award with the provinces,” the source proposed.
